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MISREPRESENTATION  IN 
RAILROAD  AFFAIRS 


Misrepresentation 
in  Railroad  Affairs 


By  George  Kennan 


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The  Country  Life  Press 
Garden  City,  New  York 


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Copyright,  1916,  by 
GEORGE   KENNAN 


CONTENTS 

CHAPTER  PAGE 

I.    Misrepresentation  in  Railroad  Affairs      3 
II.    The  Psychology  of  Mr.  Roosevelt     .    .    47 


836131 


Published  in  part  in  the  numbers  of  the  North  Ameri- 
can Review  for  May  and  June,  19 16.  Permission  to  re- 
print has  courteously  been  given  by  the  Editor  of  that 
periodical,  who  also  consented  to  the  republication  in 
book  form  of  "  The  Chicago  &  Alton  Case,"  a  part  of 
which  first  appeared  in  the  Review  for  January,  19 16. 


MISREPRESENTATION  IN 
RAILROAD  AFFAIRS 


'     >  >  >       i         5  ■» 


3    ^1  i     'a    »  »   •   1 


Misrepresentation  in 
Railroad      Affairs 

CHAPTER  I 

Misrepresentation  in  Railroad  Atfairs 

No  public  question  or  private  transaction  can 
ever  be  profitably  discussed  unless  the  essential 
facts  involved  therein  are  accurately  set  forth. 
In  an  article  entitled  "The  Chicago  &  Alton 
Case/'  first  published  in  the  North  American 
Review  for  January,  191 6,  and  later  reprinted  in 
book  form,  I  criticised  as  inaccurate  and  mis- 
leading certain  statements  concerning  this  case 
made  by  Prof.  William  Z.  Ripley  in  a  recently 
published  book  entitled  "Railroads:  Finance 
and  Organization."^ 

These  erroneous  and  misleading  statements 
were:  i.  That  the  Chicago  &  Alton  Railroad, 
when  the  Harriman  syndicate  bought  it,  was 
doing  "a  constantly  expanding  business";  (2) 
that  the  syndicate  made  a  profit  of  $23,600,000 

^"Railroads:  Finance  and  Organization,"  by  Professor  William 
Z.  Ripley;  N.  Y.,  1915,  pp.  77,  262-266. 


MISREPRESENTATION  IN 

out  of  its  financiering;  (3)  that  the  operations  of 
the  syndicate  were  "concealed,"  "covered  up," 
"never  disclosed,"  and  "obscured  in  the  pub- 
lished accounts";  (4)  that  the  reorganization  of 
the  road  created  "the  need  of  high  rates  for 
service  in  order  to  support  the  fraudulent  capi- 
talization"; (5)  that  as  a  result  of  the  recapital- 
ization the  road  was  "physically  crippled";  and 
(6)  that  Mr.  Harriman  was  a  "conspirator," 
whose  management  of  the  property  was  "un- 
scrupulous," "fraudulent,"  "piratical"  and 
"predatory."     (pp.  77,  262-266.) 

In  my  article  on  the  Chicago  &  Alton  case  I 
furnished  what  seemed  to  me  to  be  proof  that 
each  and  every  one  of  these  statements  was 
erroneous.  Does  Professor  Ripley,  in  his  reply 
(published  in  the  North  American  Review  for 
April,  19 1 6),  question  my  proofs,  or  attempt  to 
make  good  his  original  assertions?  Not  in  any 
way  whatever.  He  brings  up  sundry  new  mat- 
ters, and  proves  conclusively  that  the  capitaH- 
zation  of  the  Alton  was  largely  increased — a  fact 
that  has  never  been  disputed — but  he  does  not 
join  issue  with  me  on  any  of  the  points  that  I 
raised.  So  far,  therefore,  as  silence  can  give 
consent,  he  virtually  admits  that  the  Harriman 
syndicate  did  not  make  $23,600,000  out  of  its 
financiering;  that  the  Alton  road,  when  the  syn- 


RAILROAD  AFFAIRS 

dicate  bought  it,  was  not  doing  "a  constantly 
expanding  business'';  that  the  reorganized  com- 
pany did  not  raise  rates  "to  support  the  fraud- 
ulent capitalization";  and  that  the  property  was 
not  "physically  crippled"  as  the  result  of  Mr. 
Harriman's  operations.  In  other  words,  he 
tacitly  admits  that  his  statements  with  regard  to 
these  particular  matters  were  so  erroneous  that 
he  does  not  care  to  defend  them.  Having 
cleared  the  ground  to  this  extent,  I  now  purpose 
to  consider  the  first  account,  and  the  latest  ac- 
count, given  by  Professor  Ripley  of  this  Chicago 
&  Alton  transaction. 

The  earliest  public  reference  that  Mr.  Ripley 
made  to  the  case  is  to  be  found  in  a  single  para- 
graph of  the  report  of  the  U.  S.  Industrial  Com- 
mission of  1 90 1.  The  report  is  signed  by  the 
Commissioners,  not  by  Professor  Ripley,  but  the 
latter  says  he  wrote  it,  and  doubtless  he  did.  As 
it  shows  what  he  first  thought  of  the  "Alton 
business,"  and  what  the  Commission  thought  of 
it,  at  a  time  when  all  the  details  of  the  reorgani- 
zation were  known  or  readily  accessible,  I  quote 
the  paragraph  in  full : 

"An  excellent  illustration  of  inflation  of  capi- 
talization is  furnished  by  the  recent  reorganiza- 


MISREPRESENTATION  IN 

tion  of  the  Chicago  &  Alton  Railway  Company. 
The  old  Alton  management  was  extremely  con- 
servative. The  stock  had  never  been  watered, 
and  represented,  before  the  recent  deal,  less  than 
the  probable  cost  of  duplication.  The  company 
was  capitalized  at  about  $30,000,000,  including 
$22,000,000  of  stock  and  about  $8,000,000  bonds. 
It  had  a  net  earning  capacity  of  $2,900,000  a 
year,  paying  regular  dividends  of  7  or  8  per  cent, 
on  its  common  stock.  In  1899  the  road  was 
bought  by  a  syndicate,  which  paid  $175  a  share 
for  the  common  stock  and  $200  a  share  for  the 
preferred  stock,  making  a  total  cost  to  the  pur- 
chaser of  $40,000,000  for  the  $22,000,000  of  stock. 
The  road  was  recapitalized  at  $94,000,000,  or 
$54,000,000  of  bonds  and  $40,000,000  of  stock. 
The  new  bonds  were  floated  at  3^  per  cent.  The 
fixed  charges  of  the  road  as  reorganized  amount 
to  $1,963,000  per  year.  On  the  basis  of  the  for- 
mer earning  capacity  of  the  road,  which  aver- 
aged considerably  more  than  $3,000  net  per 
mile,  it  is  estimated  that  the  company  will  have 
no  difiiculty  in  earning  its  fixed  charges  and  pay- 
ing a  dividend  on  the  preferred  stock.  The  in- 
crease of  capitalization  in  this  case  is  defended 
on  the  ground  that  the  road  will  not  have  to  earn 
any  more  than  formerly  in  order  to  pay  interest 
and  dividends  on  the  new  capital.  It  seems 
clear,  however,  that  the  doubling  of  the  capital 
stock  and  the  increasing  of  the  bonded  debt 
nearly  sevenfold  must  impose  a  burden  upon 
the  rates  that  will  tend  to  prevent  any  reduction 
which  might  otherwise  take  place,  and  afford  a 

6 


RAILROAD  AFFAIRS 

convenient  reason  for  refusing  to  advance 
wages."  (Report  of  U.  S.  Industrial  Commis- 
sion, Vol.  XIX,  p.  407.) 

This  is  probably  the  most  nearly  accurate  ac- 
count of  the  financial  reorganization  of  the  Alton 
that  Professor  Ripley  has  ever  given;  but  it  con- 
tains no  suggestion  of  ''fraud,"  ''piracy," 
"crippling,"  or  "scuttling."  On  the  contrary, 
it  treats  the  transaction  as  an  ordinary  case  of 
inflation,  and  admits  that  the  reorganized  com- 
pany will  probably  "have  no  difficulty  in  earn- 
ing its  fixed  charges  and  paying  a  dividend  on  the 
preferred  stock."  The  only  criticism  made — 
and  that  a  very  mild  one — is  that  the  expanded 
capitalization  may  "tend"  to  prevent  a  reduc- 
tion of  rates  and  an  increase  of  wages — two 
things  that  we  now  know  it  has  not  done. 

Professor  Ripley  may  say,  in  explanation  of 
the  marked  difference  between  his  first  statement 
and  his  later  statements,  that  at  the  time  when 
he  wrote  the  former  the  details  of  the  reorgani- 
zation were  not  known,  because  they  had  been 
"obscured,"  "concealed,"  or  "covered up."  But 
this  explanation  will  not  bear  even  the  most  su- 
perficial scrutiny.  Every  essential  fact  con- 
nected with  the  reorganization  had  been  pub- 
lished in  the  financial  journals  of  New  York  long 
before  Professor  Ripley  wrote  his  first  account 

7 


MISREPRESENTATION  IN 

of  the  transaction.  All  that  the  Interstate 
Commerce  Commission  did,  six  years  later,  was 
to  make  a  show  of  uncovering  things  that  had 
never  been  covered.  But  if  all  the  facts  were 
known — as  they  were — in  1901,  why  did  not 
Professor  Ripley  make  his  charges  of  "fraud," 
"conspiracy,"  "crippling"  and  "scuttling"  at 
that  time?  No  one  would  suppose,  from  read- 
ing his  Industrial  Commission  report,  that  the 
Alton  transaction  involved  anything  worse  than 
injudicious  over-capitalization.  When  did  he 
discover  that  the  reorganization  was  "unscrupu- 
lous," "fraudulent,"  "piratical,"  and  "preda- 
tory?" Not,  apparently,  until  the  Interstate 
Commerce  Commission  and  its  counsel  began 
proceedings  against  Mr.  Harriman  as  presum- 
ably a  malefactor  in  1907.  If,  as  suggested  by 
an  English  economist,  "Professor  Ripley  be- 
lieves that  the  utterances  of  the  Interstate  Com- 
merce Commission  are  inspired,"  he  might 
naturally  be  expected  to  follow  the  Commission's 
lead;  but  I  can  think  of  no  other  plausible  ex- 
planation of  the  marked  difference  between  the 
account  that  he  gave  of  the  Alton  transaction 
before  the  Commission  made  its  report,  and  the 
accounts  that  he  has  given  since  that  time. 

I  come  now  to  his  latest  statement  of  the 
Chicago  &  Alton  case,  which  is  contained  in  his 

8 


RAILROAD  AFFAIRS 

Review  article.  The  unproved  and  unprovable 
assertions  on  the  first  page,  with  regard  to  Mr. 
Harriman's  influence  and  power,  do  not  seem  to 
caU  for  serious  criticism.  Everybody  knows 
that  Mr.  Harriman  was  a  prominent  figure  in  the 
great  fields  of  transportation  and  finance;  but 
few  believe,  or  can  be  made  to  believe,  that  he 
controlled  ''the  greatest  banking  institutions" 
in  the  country;  that  he  did  what  he  liked  with 
"the  vast  resources  of  the  New  York  life  in- 
surance companies";  that  ''laws  were  enacted  at 
his  will";  and  that  "state  and  national  con- 
ventions" assembled  only  to  "take  his  orders." 
Able  and  influential  Mr.  Harriman  undoubtedly 
was ;  but  he  never  exercised  the  almost  supreme 
control  over  railroads,  banks,  insurance  compa- 
nies, legislatures,  and  political  conventions  that  is 
here  attributed  to  him.  When,  therefore,  Theo- 
dore Roosevelt  intervened,  as  Mr.  Ripley  says  he 
did,  and  "  thwarted  his  "  (Mr.  Harriman's)  "pur- 
pose to  become  an  absolute  dictator  in  transpor- 
tation affairs,"  the  President  would  seem  to  have 
acted  without  sufficient  knowledge,  or  upon  in- 
adequate provocation.  But  would  it  not  have 
been  well  for  Mr.  Roosevelt  and  Mr.  Ripley  to 
agree  in  advance  upon  their  joint  defence?  Mr. 
Roosevelt  says  it  is  "monstrously  iniquitous"  to 
suppose  that  his  "personal  disagreement  mth  a 

9 


MISREPRESENTATION  IN 

railroad  president"  had  anything  to  do  with  the 
prosecution  of  Mr.  Harriman  by  the  Interstate 
Commerce  Commission.  Then  comes  Professor 
Ripley  with  the  declaration  that  it  was  "Theo- 
dore Roosevelt''  who  "blocked  the  path"  of  the 
ambitious  railroad  president  and  "  thwarted  his 
purpose."  Who,  then,  really  did  do  it?  Ac- 
cording to  Mr.  Ripley  it  was  Theodore  Roose- 
velt; but  the  latter  seems  to  disclaim  responsi- 
bility. This  conflict  of  testimony  leaves  the 
question  in  doubt,  and  possibly  we  may  never 
know  who  it  really  w^as  that  brought  about  the 
investigation  of  Mr.  Harriman's  past  activities, 
and  thus  saved  the  country  from  an  "absolute 
dictatorship  in  transportation  affairs." 

Professor  Ripley's  restatement  of  the  Chicago 
&  Alton  case  from  his  1907  point  of  view  does  not 
seem  to  need  extended  comment.  Neither  does 
the  page  of  statistical  proof  that  the  capitaliza- 
tion of  the  Alton  was  expanded.  All  this 
ground  we  have  covered  before.  The  only  new 
matters  brought  up  are:  (i)  the  alleged  dis- 
approval of  the  Alton  reorganization  by  Mr. 
Harriman's  own  counsel;  (2)  the  amount  of  the 
new  capitalization  ($62,000,000)  that  Mr.  Rip- 
ley says  did  not  represent  "one  dollar  of  con- 
sideration"; (3)  the  increase  of  capitalization  as 
compared  with  the  "net  average  capitalization 

10 


RAILROAD  AFFAIRS 

of  the  railroads  of  the  United  States";  (4)  the 
failure  of  the  Alton  Railway  Company  to  report 
the  30  per  cent,  dividend  to  the  Interstate  Com- 
merce Commission;  (5)  the  responsibility  for 
the  present  financial  condition  of  the  Alton 
Company;  (6)  the  mortgaging  of  34  miles  of  un- 
built road;  (7)  the  alleged  attempt  to  "cover 
up"  the  discount  on  the  3  per  cent,  bonds  by 
means  of  deceptive  bookkeeping;  and  (8)  the 
alleged  "concealment,"  in  general,  of  the  syndi- 
cate's operations. 

I.  The  alleged  disapproval  of  the  Alton  re- 
organization by  Mr.  Harriman^s  own  counsel. 

Professor  Ripley  quotes  Mr.  Paul  D.  Cravath, 
of  Mr.  Harriman's  counsel,  as  saying: 

"But  .  .  .  we  are  now  dealing  with  the 
period  which  immediately  followed  the  de- 
pression of  1893  .  .  .  when  very  different 
standards  were  being  applied  from  those  ap- 
plied noWj  and  when  many  things  were  not 
only  permissible,  but  were  approved,  which, 
under  existing  conditions  and  under  the  conserv- 
ative influences  which  have  come  from  success 
and  from  our  rapid  development,  are  now  re- 
garded as  at  least  unwise." 

Upon  this  Mr.  Ripley  makes  the  following 
comment: 

"The  foregoing  admission  that  the  Alton  re- 
organization may  be  ^now  regarded  as  at  least 

II 


MISREPRESENTATION  IN 

unwise* — a   piece   of   bad   business — few   will 
question  nowadays. '* 


Mr.  Cravath  did  not  admit  that  the  Alton  re- 
organization was  ^'at  least  unwise."  He  said 
that  "many  things  were  approved"  twenty 
years  ago  which  "are  now  regarded  as  at  least 
unwise."  His  reference  was  to  changes  in  busi- 
ness standards,  not  to  the  Alton  reorganization 
as  a  whole.  Speaking  of  a  single  feature  of  that 
reorganization — the  issuing  of  common  stock  to 
represent  anticipated  earnings  rather  than  in- 
trinsic value — Mr.  Cravath  also  said:  "Accord- 
ing to  present  practice  this  was  unsound  finance; 
but  it  was  never  dishonest  finance.  According 
to  the  standards  of  the  time  it  was  entirely  de- 
fensible." 

2.  The  $62,000,000  of  the  new  capitalization 
which ^  it  is  alleged ^  did  not  represent  ^^one  dollar 
of  consideration . " 

Professor  Ripley  says  that  a  $40,000,000 
3  per  cent,  mortgage  was  placed  upon  the  prop- 
erty, "to  take  up  $8,500,000  worth  of  first 
mortgage  bonds,  to  make  improvements — only 
$18,000,000  was,  however,  actually  expended  for 
this  purpose — and  for  'other  corporate  pur- 
poses.' This  left  a  net  increase  of  $62,000,000 
of  stock  and  liabilities  without  one  dollar  of  con- 


12 


RAILROAD  AFFAIRS 

sideration. "  (p.  541 .)  Mr.  Ripley ^s  arithmetic  is 
somewhat  baffling.  Eighteen  millions  from 
forty  miUions  does  not  leave  sixty-two  miUions. 
He  apparently  intends,  however,  that  the 
$18,000,000  shall  be  subtracted  from  the  gross 
increase  of  $80,000,000.  This  leaves,  he  says, 
"a  net  increase  of  $62,000,000  without  one  dollar 
of  consideration.'*  The  clear  implication  is  that 
this  increase  was  all  "water."  But  Mr.  Rip- 
ley's statements  do  not  agree  with  one  another, 
nor  do  his  computations  work  out.  He  quotes, 
and  seems  to  accept  as  true,  the  old  Alton  Com- 
pany's report  for  1894,  showing  that  the  capital- 
ization of  the  road  "represented  less  than  60  per 
cent,  of  the  actual  cost  of  the  property."  (p.  540.) 
As  the  old  capitalization  was  $34,000,000,  and 
as  this  sum  was  "less  than  60  per  cent,  of  the 
actual  cost  of  the  property,"  the  road,  before  the 
syndicate  bought  it,  must  have  been  intrinsically 
worth  more  than  $57,000,000.  If  we  add  to 
this  real  intrinsic  value  the  sum  of  $18,000,000 
which  Professor  Ripley  admits  Mr.  Harriman 
spent  in  betterments,  we  have  an  actual  cash 
value,  in  1906,  of  $75,000,000.  This,  subtracted 
from  the  total  capitalization  of  $114,000,000, 
leaves  only  $39,000,000  of  "water,"  instead  of 
Professor  Ripley's  $62,000,000.  But  even  this 
estimate  of  the  "  water  "  is  much  too  large.    Ac- 

13 


MISREPRESENTATION  IN 

cording  to  Mr.  Slason  Thompson,  Director  of  the 
Bureau  of  Railway  News  and  Statistics,  the  re- 
production cost  of  the  Alton  in  1907,  including  the 
largely  enhanced  value  of  terminals,  right  of  way, 
etc.,  would  cover  all  of  the  new  capitalization 
except  the  common  stock.  (See  "  Cost,  Capital- 
ization, and  Estimated  Value  of  American  Rail- 
roads," by  Slason  Thompson,  first  edition,  p.  187, 
Chicago,  1907.)  Even  the  common  stock  repre- 
sented the  potential  earning  capacity  of  a  re- 
built and  re-equipped  road,  and  the  company 
was  actually  earning  5  per  cent,  on  it  when  the 
control  of  the  property  was  transferred  to  the 
"Clover  Leaf"  in  1907. 

3.     The  increase  of  capitalization. 

Professor  Ripley  says  that  after  the  Harriman 
syndicate  bought  the  Alton  its  total  capitaliza- 
tion, within  seven  years,  was  "expanded  from 
$33,951,000  to  more  than  $114,000,000 — an  in- 
crease of  securities  exceeding  $60,000  per  mile, 
that  being  about  the  average  net  capitalization 
of  the  railroads  of  the  United  States  at  the 
present  time."  (p.  540.)  According  to  the 
Bureau  of  Railway  Statistics,  the  average  net 
capitalization  of  all  the  railroads  in  the  North 
Atlantic  States  was  $102,931  per  mile.  (See 
"  Cost,  Capitalization,  and  Estimated  Value  of 
American   Railroads,"  by  Slason  Thompson, 

14 


RAILROAD  AFFAIRS 

p.  98.)  Three  of  the  most  important  railroads  of 
the  country,  viz.:  the  Baltimore  &  Ohio,  the 
Delaware  &  Lackawanna,  and  the  Reading,  are 
capitalized  respectively  at  $106,000,  $115,000, 
and  $169,000  per  mile,  net.  (See  "Railroads: 
Finance  and  Organization,"  by  WiUiam  Z. 
Ripley,  p.  75.)  The  expanded  capitalization  of 
the  Alton  per  mile,  according  to  Mr.  Ripley's 
figures,  was  less,  in  1907,  than  that  of  the  Lack- 
awanna, or  the  Reading,  and  did  not  greatly  ex- 
ceed the  average  of  all  the  railroads  in  the  North 
Atlantic  States. 

4.  The  failure  of  the  Alton  Railway  Company 
to  report  the  30  per  cent,  dividend  to  the  Interstate 
Commerce  Commission, 

Professor  Ripley  sets  forth  this  omission  with 
the  emphasis  of  itaUcs;  but,  as  a  matter  of  fact, 
there  was  no  requirement  of  law  which  made  it 
necessary  for  the  Alton  Railway  Company  to  re- 
port this  dividend.  The  fact  that  it  had  been 
declared  was  made  public  in  all  the  leading 
financial  journals  of  New  York,  consequently  it 
could  not  have  been  hidden  from  the  Commis- 
sion, nor  from  anybody  else. 

5.  The  responsibility  for  the  present  financial 
condition  of  the  Alton  Company, 

Professor  Ripley  says  that  "the  road  has 
failed  to  earn  even  its  fixed  charges  since  19 12  by 

IS 


MISREPRESENTATION  IN 

about  $6,6oo,oco,  the  deficit  growing  larger  year 
by  year."  If  this  means  that  the  deficit  has 
grown  larger  every  year  from  191 2  to  date,  the 
statement  is  not  true.  The  New  York  Times , 
commenting  upon  the  annual  report  of  the  Alton 
Company  for  191 5,  says: 

^'The  Chicago  &  Alton  failed  by  $1,690,156  to 
meet  charges,  but  this  deficit  is  $1,072,133 
smaller  than  the  19 14  deficit."  (New  York 
Times  J  October  22,  191 5,  also  Railway  Age 
Gazette,  October  29,  191 5.) 

But  this,  perhaps,  is  an  excusable  inaccuracy. 
It  is  much  less  pardonable  to  say,  as  Professor 
Ripley  does,  that  the  Alton  was  "financially 
assassinated"  by  the  Harriman  syndicate  in 
1899.  (p.  541.) 

When  Mr.  Harriman  and  President  Felton 
severed  their  connection  with  the  Alton,  after 
the  transfer  of  control  to  the  Toledo,  St.  Louis  & 
Western  in  1907,  the  road  was  paying  the  stipu- 
lated dividend  of  4  per  cent,  on  its  preferred 
stock  and  earning  5  per  cent,  on  its  common.  It 
was,  therefore,  not  only  a  solvent  but  a  pros- 
perous road.  What  happened  afterward?  Be- 
tween 1907  and  191 2,  under  the  Shonts  manage- 
ment, the  gross  earnings  increased  13.5  per  cent., 
while  the  net  earnings  fell  off  27.8  per  cent.   The 

16 


RAILROAD  AFFAIRS 

result  of  the  later  management  may  be  shown  in 
tabular  form  as  follows: 

1907  1912 

Gross  earnings    ....     $12,809,426  $14,535,722 

Net  earnings.^     ....         4,415,974  3,188,865 

Operating  ratio        ...                 65.5  78 

It  thus  appears  that  the  road,  in  1912,  was 
doing  $1,726,296  more  business  than  in  1907, 
while,  at  the  same  time,  it  was  earning 
$1,227,109  less  money, net,  owing  largely  to  the 
fact  that  it  had  increased  its  operating  expenses 
from  65.5  to  78  per  cent. 

If  the  year  1907  (the  last  year  of  the  Harri- 
man-Felton  management)  be  compared  with  the 
year  191 5  (the  latest  year  for  which  a  report  has 
been  made)  the  result  is  equally  instructive. 

1907  1915 

Gross  earnings    .     .     .     .     $12,809,426  $14,245,624 

Net  earnings 4,415,974  2,660,584 

Operating  ratio        ...                 65.5  81.3 

In  this  period  of  eight  years  the  volume  of 
business  increased  more  than  11  per  cent. 
(11.21)  while  the  net  earnings  fell  off  nearly  40 
per  cent  (39.67).  This  in  itself  is  quite  enough 
to  account  for  the  Alton's  present  financial  con- 
dition, and  for  this  the  Harriman  syndicate  can- 
not possibly  be  held  responsible.     Mr.  Harri- 

17 


MISREPRESENTATION  IN 

man  left  the  road  on  a  dividend-paying  basis  in 
1907,  and  two  years  later  he  died.  It  is  by  no 
means  certain,  moreover,  that  the  Alton  was 
ever  "financially  assassinated  '*  by  anybody;  and 
the  road  is  far  from  being  ''moribund'*  or 
"prostrated"  now.  It  is  serving  the  public 
better  than  it  ever  did  before  the  reorganization, 
and  under  the  present  management  it  increased 
its  net  earnings  from  1914  to  1915  by  $1,277,787. 
{Sqq Railway  Age  Gazette^  October  29, 191 5.)  Mr. 
Ripley  says  that  the  reorganization  was  an  "  op- 
portunity industrially  lost  by  the  people  because 
privately  exploited  by  a  few."  (p.  541.)  If  get- 
ting better  transportation  at  lower  rates  is  a  loss 
to  the  people,  the  people  have  unquestionably 
lost;  but,  from  the  economic  point  of  view,  im- 
proved service  at  reduced  cost  would  seem  to  be 
a  gain. 

6.     The  mortgaging  of  t,^  miles  of  unbuilt  road. 

At  the  time  when  the  Chicago  &  Alton  Rail- 
way Company  was  organized  it  was  thought  ex- 
pedient to  secure  the  right  to  build,  in  the  future, 
a  short  cut,  or  air  line,  between  Springfield 
Junction  and  Murrayville,  which  would  reduce, 
by  about  five  miles,  the  distance  between  Kan- 
sas City  and  Chicago.  The  projected  cut-off 
was  to  be  only  34  miles  long,  and  the  survey 
showed  that  it  could  be  built  over  easy  grades, 

18 


RAILROAD  AFFAIRS 

not  exceeding  in  any  place  i6  feet  to  the  mile. 
The  estimated  cost  was  about  $600,000,  and  it 
was  thought  that  this  sum  could  easily  be  saved 
out  of  earnings.  When  it  was  proposed  to  put  a 
mortgage  on  a  part  of  the  road,  to  secure  a  part 
of  the  bond  issue,  the  question  came  up :  should 
such  mortgage  be  made  to  cover  this  legally 
authorized  but  as  yet  unbuilt  cut-off?  Counsel 
for  the  company  and  counsel  for  the  trustee  both 
advised  that  the  short  branch  line  be  included, 
because  it  would  be  better  to  subject  it  to  the 
lien  of  the  mortgage  then  being  executed  than  to 
create  another  mortgage  hen  at  a  later  time. 
Upon  this  advice  Mr.  Harriman  and  his  asso- 
ciates acted;  but  in  order  to  proceed  openly  and 
above-board,  they  distinctly  said,  in  their  listing 
appUcation  to  the  New  York  Stock  Exchange: 

"This  line  has  been  surveyed  but  has  not  yet 
been  constructed.  By  advice  of  counsel  it  was 
included  in  the  description,  so  as  to  fasten  the 
Hen  of  the  mortgage  thereon  as  soon  as  con- 
structed.' '  (See  Commercial  6*  Financial  Chron- 
icle, November  17,  1900.) 

At  the  time  when  the  Interstate  Commerce 
Commission  investigated  the  Alton  reorganiza- 
tion, about  $1,000,000  had  been  spent  on  this 
Murrayville  cut-off  and  it  was  nearly  done.    It 

19 


MISREPRESENTATION  IN 

was  completed  in  July,  1907,  and  opened  to 
traffic  in  August. 

By  quoting  selected  parts  of  the  testimony  of 
the  Rock  Island  Company's  controller,  Mr. 
Charles  W.  Hillard,  Professor  Ripley  tries  to 
make  it  appear  that  in  this  mortgaging  of  an  un- 
built branch  line  there  was  something  crooked, 
if  not  illegal.  As  a  matter  of  fact,  however,  the 
mortgaging  of  a  short  stretch  of  unbuilt  line  was 
not  only  a  legal  but  a  very  common  practice.  At 
a  later  stage  in  the  hearing  Controller  Hillard 
himself  said : 

"  I  would  like  to  make  a  little  explanation.  I 
fear  the  language  I  used  in  answering  the  ques- 
tion propounded  yesterday  was  not  as  it  should 
have  been.  It  has  been  taken  as  a  criticism  of 
making  a  mortgage  on  a  road  before  it  was  con- 
structed. That  I  know  to  be  a  very  common 
thing.  ...  I  know  it  to  have  been  true  for 
many  years.  I  have  done  it  myself."  (Official 
testimony,  pp.  21-22.) 

If  Professor  Ripley  had  wished  to  be  perfectly 
fair,  he  would  have  quoted  this  part  of  Control- 
ler Hillard 's  testimony  as  well  as  the  parts  that 
he  selected,  but,  then,  of  course,  he  could  not 
have  made  the  impression  that  he  was  ap- 
parently trying  to  make. 

20 


RAILROAD  AFFAIRS 

7.  The  alleged  attempt  to  ^^  cover  up^^  the  dis* 
count  on  the  bonds. 

By  again  quoting  a  selected  part  of  the  testi- 
mony of  Controller  HiUard — a  part  drawn  from 
him  by  the  improper  leading  questions  of  the 
Commission's  counsel — Professor  Ripley  tries  to 
make  it  appear  that  an  ordinary  and  customary 
treatment  of  items  in  double-entry  bookkeeping 
was  an  attempt  to  conceal  the  sale  of  the  3  per 
cent,  bonds  to  the  stockholders  at  a  discount  of 
35  per  cent.  The  matter  in  question  was  the 
propriety  of  charging  the  discount  against  the 
surplus  of  $12,444,000  obtained  by  capitalizing 
sums  spent  for  past  betterments.  The  Rock 
Island  controller — a  more  or  less  critical  but  ap- 
parently a  fair  and  candid  witness — tried  to  ex- 
plain to  the  commission  that  this  treatment  of 
the  items  was  '^a  matter  of"  bookkeeping 
"judgment."  "Having  done  what  they  did 
do,"  he  said  (that  is,  having  capitaHzed  past 
betterments)  "they  had  a  perfect  right  to  credit 
this  $12,444,000  to  profit  and  loss;  and  then  the 
discount  on  bonds  was  a  proper  charge  against 
profit  and  loss."  (p.  11  of  Hillard's  testimony.) 
The  witness  disapproved  the  capitalization  of 
sums  spent  for  past  betterments;  but  he  saw 
nothing  wrong  in  the  bookkeeping.  By  skilful 
elimination   and    substitution,    however,   Pro- 

21 


MISREPRESENTATION  IN 

fessor  Ripley  makes  Mr.  Hillard  seem  to  con- 
demn the  method  of  keeping  accounts.  In  the 
testimony  relating  to  the  bookkeeping,  Professor 
Ripley  quotes  Commissioner  Lane  as  asking  the 
following  question,  and  Mr.  Hillard  as  making 
the  following  reply : 

"Commissioner  Lane:  If  those  things  could 
be  done  .  .  .  would  not  a  practice  of  that 
kind  destroy  the  integrity  and  uniformity  of 
railroad  accounts  generally?'^ 

"Mr.  Hillard:  It  would  upset  the  whole 
system." 

The  reader  naturally  supposes  that  the  ques- 
tion of  the  Commissioner  and  the  reply  of  the 
witness  related  to  the  method  of  bookkeeping, 
that  is,  to  the  setting  off  of  the  bond  discount 
against  the  $12,444,000  surplus,  for  the  alleged 
purpose  of  concealment.  In  fact,  however, 
they  related  to  a  wholly  different  matter.  In 
Professor  Ripley's  quotation  they  are  made  a 
part  of  Mr.  Hillard's  testimony  on  a  question  of 
bookkeeping.  In  the  official  record  they  appear 
as  a  part  of  his  testimony  on  the  question 
whether  a  later  board  of  directors  can  properly 
reverse  the  action  of  an  earlier  board.  Profes- 
sor Ripley  puts  two  scraps  of  testimony  to- 
gether as  if  they  belonged  together;  but  in  the 

22 


RAILROAD  AFFAIRS 

official  record  they  are  four  pages  apart  and  re- 
late to  wholly  different  matters.  Mr.  Hillard 
did  not  say  that  the  Alton^s  bookkeeping  meth- 
ods would  "upset  the  whole  system"  of  railroad 
accounting.  He  said  that  if  one  board  of  di- 
rectors should  pay  for  betterments  out  of  rev- 
enue, and  a  later  board  should  reverse  that 
action  and  charge  those  same  betterments  to 
capital,  such  a  practice  would  "upset  the  whole 
system."  (Mr.  Hillard's  testimony,  pp.  12,  16.) 
It  is  proper  enough,  in  quoting  the  testimony 
of  a  witness,  to  omit  such  parts  of  it  as  may  not 
bear  on  the  matter  in  hand;  but  it  is  not  proper, 
by  eliminating  four  pages,  to  make  a  witness 
seem  to  say  what  he  did  not  say.  Commis- 
sioner Lane's  question  and  Mr.  Hillard's  answer 
are  made  by  Professor  Ripley  to  discredit  the 
bookkeeping;  while,  in  reality,  both  related  to  an 
entirely  different  subject  which  had  been  taken 
up  after  the  question  of  bookkeeping  had  been 
dropped.  Such  garbling  of  an  official  record  is 
not  permissible.^ 


^The  testimony,  as  Professor  Ripley  gives  it,  is  as  follows  (omit- 
ting all  except  enough  to  show  the  context) : 

"Mr.  Kellogg:  But  charging  the  discount  on  the  bonds  against 
this  would  covier  it  up  on  the  books,  would  it  not?  " 
"Mr.  Hillard:  Yes." 

'*Mr.  Kellogg:  It  would  tend  to  obscure  it,  would  it  not?" 
"Mr.  Hillard:  Yes,  so  far  as  the  public  were  concerned."  (p,i3.) 
"Commissioner  Lane:  If  those  things  could  be  done  ....  would 

23 


MISREPRESENTATION  IN 

Professor  Ripley,  however,  resorts  to  im- 
proper elimination,  not  only  when  he  quotes  the 
testimony  of  Air.  HiLlard,  but  also  when  he 
quotes  the  testimony  of  Mr.  Harriman.  In  the 
latter  case  he  eliminates  fourteen  pages;  and  if 
after  reading  in  the  official  report  the  first  part 
of  his  quotation  you  msh  to  find  the  last  part, 
you  must  skip  from  page  117  to  page  131.  Five 
asterisks  are  hardly  enough  to  indicate  the 
omission  of  five  or  six  thousand  words.  The 
matter  under  investigation  was  the  failure  of  the 
Alton  Company  to  pay  dividends  on  its  common 
stock.  Mr.  Kellogg  asked  Mr.  Harriman: 
''Don't  you  think  that  when  stock  of  a  railroad 


not  a  practice  of  that  sort  destroy  the  integrity  and  uniformity  of 
railroad  accounts  generally?"  (p.  i6.) 

"Mr.  Hillard:  It  would  upset  the  whole  system."  (p.  i6.) 

The  testimony  as  the  official  record  gives  it  is  as  follows: 

"Mr.  Hillard:  Each  board  of  directors  has  a  perfect  rightto 
appropriate  that"  (the  money  earned).  "They  have  the  option 
to  pay  it  in  dividends,  or  set  it  aside;  and  when  they  have  exer- 
cised that  option  it  is  final.  No  subsequent  board  of  directors 
can  revoke  it." 

*'  Commissioner  Lane:  If  those  things  can  be  done,  and  revoked 
from  time  to  time  as  the  directorate  changes,  would  not  such  a 
practice  destroy  the  integrity  and  uniformity  of  railroad  accounts 
generally?" 

"Mr.  Hillard:  It  would  upset  the  whole  system."  (p.  i6.) 

In  order  to  make  Commissioner  Lane's  question  and  ^Mr. 
Hillard's  answer  (about  changes  in  the  directorate)  fit  into  the 
place  to  which  Mr.  Ripley  transfers  them  (the  discussion  about 
the  bookkeeping)  the  professor  found  it  necessary  to  omit  the 
Commissioner's  words:  "and  revoked  from  time  to  time  as  the 
directorate  changes."  Upon  such  manipulation  of  official  testi- 
mony it  is  hardly  necessary  to  comment. 

24 


RAILROAD   AFFAIRS 

company  is  put  out  there  is  some  obligation,  at 
some  time,  to  pay  something  on  it?  Professor 
Ripley  quotes  Mr.  Harriman  as  replying  merely: 
"Yes,  sir."  (p.  117.)  Then  the  Prof  essor  puts  in 
five  asterisks  and  coolly  jumps  fourteen  pages  to 
another  question!  (p.  131.)  What  Mr.  Harri- 
man really  said  was:  "Yes,  sir— wait  a  minute!" 
— showing  that  he  wished  to  make  an  explana- 
tion. Mr.  Kellogg,  however,  would  not  listen, 
and  was  already  asking  another  question  when 
Mr.  Harriman  again  said:  "Wait  a  minute!" 
The  witness  finally  got  a  chance  to  explain;  but 
his  "Wait  a  minute!"  and  his  explanation  are  in 
the  fourteen  pages  that  Mr.  Ripley  omits. 

Such  manipulation  of  documentary  material 
is  not  creditable  to  a  professor  of  economics.  It 
might  perhaps  be  the  last  resort  of  an  un- 
scrupulous attorney  who  felt  conscious  that  he 
had  a  desperately  weak  case;  but  it  is  not  fair 
controversy,  nor  is  it  fair  to  Mr.  Harriman. 

The  whole  question  of  alleged  "concealment,'^ 
by  means  of  "deceptive  bookkeeping,"  seems  to 
me  to  be  conclusively  settled  by  the  wide  pub- 
licity given  in  the  press  to  the  discount  on  the 
bonds,  which,  according  to  Professor  Ripley,  it 
was  the  purpose  of  the  syndicate  to  conceal.  No 
sane  and  reasonable  man  juggles  with  his  books 
in  order  to  conceal  a  certain  fact,  while,  at  the 

25 


MISREPRESENTATION  IN 

same  time,  he  publishes  that  fact  broadcast  in 
the  newspapers.  The  sale  of  the  3  per  cent, 
bonds  to  the  stockholders  at  a  discount  of  35  per 
cent,  was  made  known  to  the  public  through  all 
the  leading  financial  journals  of  New  York.  The 
circular  offering  the  bonds  to  the  stockholders  at 
65  was  noticed  in  the  Commercial  b'  Financial 
Chronicle  of  July  22,  1899,  and  again  in  the 
issue  of  April  14,  1900.  Reference  to  it  may 
also  be  found  in  the  Manual  of  Statistics  for  1900, 
p.  61;  in  Moody s  Manual  for  1901,  p.  1198;  in 
the  listing  application  to  the  New  York  Stock 
Exchange,  November  17,  1900;  and  in  various 
letters  and  circulars  issued  and  widely  distrib- 
uted by  the  Alton  Company  in  the  summer  of 
1899.  To  every  broker  and  well-informed  in- 
vestor the  fact  was  not  only  known  but  perfectly 
understood.  In  commenting,  seven  years  later, 
upon  this  feature  of  the  reorganization,  the  Com- 
mercial  b^  Financial  Chronicle  said: 

"  The  sale  of  the  3  per  cent,  refunding  bonds 
at  65  has  been  heralded  in  the  press  as  if  it 
marked  the  uncovering  of  some  hidden  item; 
and  surprise  has  been  affected  at  the  idea  that 
the  bonds  should  have  been  disposed  of  at  such  a 
low  (as  assumed)  figure.  The  truth  is,  these 
bonds  were  offered  for  subscription  to  the  stock- 
holders of  the  company  at  the  figure  given,  and 

26 


RAILROAD  AFFAIRS 

announcement  of  the  offer  was  conveyed  to  them 
through  circulars,  Stock  Exchange  listing  ap- 
plications, and  in  various  other  equally  public 
ways.  If  any  one  cares  to  pursue  the  inquiry 
he  will  find  a  news  item  concerning  this  sub- 
scription offering  in  one  of  our  issues  nearly 
seven  years  ago,  namely,  in  the  Chronicle  of 
April  14,  1900,  p.  739.  In  our  Investor's  Sup- 
plement, which  is  a  reference  book  containing 
a  standing  record  of  facts,  this  particular  feature 
of  the  reorganized  company  was  noted  in  num- 
ber after  number,  year  by  year,  until  July,  1905. 
(Editorial  in  the  Commercial  b"  Financial 
Chronicle  for  March  2, 1907,  just  after  the  Alton 
investigation.) 

Nothing  but  a  fixed  determination  to  blacken 
Mr.  Harriman's  reputation  could  have  led 
counsel  for  the  Government  to  charge  the  Alton 
syndicate  with  a  resort  to  "deceptive  book- 
keeping'' as  a  means  of  concealing  the  35  per 
cent,  discount  on  the  3  per  cent,  bonds.  Mr. 
Kellogg  knew,  or  ought  to  have  known,  and 
Professor  Ripley  now  knows,  or  ought  to  know, 
that  instead  of  trying  to  '^ cover  up"  the  dis- 
count, the  syndicate  was  giving  it  the  widest 
possible  publicity  through  the  leading  financial 
journals  of  the  country. 

8.  The  alleged  ^^  concealment,^^  in  general ,  of 
the  Alton  syndicate's  operations. 

27 


MISREPRESENTATION  IN 

Professor  Ripley  says:  *'So  adroitly  was 
everything  concealed  that  not  even  the  Rock 
Island  ^ crowd' — not  unskilled  in  the  ways  of 
Wall  Street — suspected  the  actual  situation  until 
they  had  acquired  a  half  interest  in  the  road." 

That  the  '^Rock  Island  crowd"  should  have 
been  ignorant  of  the  condition  of  the  Alton 
when  they  bought  a  half  interest  in  it  is  practi- 
cally impossible.  If  they  had  had  no  other 
sources  of  information  than  the  files  of  the  Com- 
mercial 6*  Financial  Chronicle,  they  would  have 
found  therein  every  fact  that  it  was  necessary 
for  them  to  know,  not  only  with  regard  to  the 
financial  condition  of  the  road,  but  with  regard 
to  all  the  operations  of  Mr.  Harriman  and  his 
associates. 

The  whole  charge  of  "concealment"  may  best 
be  refuted,  perhaps,  by  means  of  quotations 
from  the  journal  above  named.  In  the  course 
of  the  Alton  investigation,  counsel  for  the  syndi- 
cate and  counsel  for  the  Commission  both 
agreed  that  a  file  of  the  Coynmercial  b"  Financial 
Chronicle  should  be  put  in  evidence,  and  that 
either  side  should  be  at  liberty  to  refer  to  it  as  an 
authority  on  financial  transactions.  (Mr.  Harri- 
man's  testimony  in  the  Alton  investigation, 
pp.  i88  and  386.) 

The  Chroniclers  references  to  the  Chicago  & 

28 


RAILROAD  AFFAIRS 

Alton  reorganization  began  as  early  as  February 
4,  1899,  when  it  made  public  the  fact  that  the 
road  had  been  purchased  by  the  syndicate,  and 
that  "  the  deal  would  be  financed  by  Kuhn  Loeb 
&  Co."  As  the  earlier  steps  in  the  reorganiza- 
tion have  never  been  questioned  and  are  not 
now  in  dispute,  I  pass  over  references  made  to 
them  in  the  numbers  of  the  Chronicle  for  Feb- 
ruary II,  February  25,  March  4,  March  18, 
April  I,  April  8,  May  20,  May  27,  June  24,  July 
I,  and  July  15, 1899,  and  begin  with  the  number 
for  July  22,  1899,  when  the  syndicate  issued  a 
circular  offering  the  3  per  cent,  bonds  to  the 
stockholders  at  a  discount  of  35  per  cent.  This 
is  one  of  the  matters  that  Professor  Ripley  says 
was  "covered  up,"  and  that  he  thinks  the  Inter- 
state Commerce  Commission  uncovered  in  1907. 
The  Chronicle  published  it  in  July,  1899,  ^^^  ^X" 
plained  what  the  syndicate  proposed  to  do  with 
the  proceeds  of  these  bonds. 

One  week  later — July  29,  1899 — the  Chroni- 
cle announced  that  Goldman  Sachs  &  Co.  had 
arranged  to  purchase  from  the  syndicate 
$io,cxx>,ooo  of  these  securities.  This  is  another 
"concealed"  matter  that  the  Interstate  Com- 
merce Commission  triumphantly  brought  to 
light  seven  years  after  the  Chronicle  had  made  it 
pubhc. 

29 


MISREPRESENTATION  IN 

On  the  7th  of  April,  1900,  the  Chronicle  an- 
nounced the  incorporation  of  the  Chicago  & 
Alton  Railifa}'  Company,  and  said  that  it  would 
lease  the  Chicago  &  Alton  Railr^a^^  Company 
for  a  period  of  ninety -nine  years.  ^'  A  new  cor- 
poration was  necessary,"  the  Chronicle  ex- 
plained, "because  the  charter  of  the  old  company 
would  not  permit  the  merger  of  the  new  acqui- 
sitions" (the  Quincy  Carrolton  &  St.  Louis  Rail^ 
road  and  the  Peoria  Northern  Railroad). 
Professor  Ripley,  however,  gives  a  different 
explanation,  based  on  the  theory  of  more 
'^covering  up."  He  asserts  that  the  purpose  of 
the  syndicate  in  creating  a  new  corporation  was 
to  "obscure  the  income  account"  of  the  old 
company,  and  that  it  was  merely  a  shrewd 
"device."  But  he  furnishes  no  evidence  in 
support  of  his  assertion,  nor  does  he  show  that 
the  "income  account"  of  the  old  company  ever 
was  "obscured." 

On  the  14th  of  April,  1900,  the  Chronicle 
printed  the  annual  report  of  the  Alton  Company 
for  the  year  ended  December  31,  1899.  This 
report  showed  that  the  company  had  capitalized 
the  sum  of  $12,444,000  which  had  been  spent  for 
betterments,  and  had  previously  been  charged 
to  revenue. 

May  5,  1900,  the  Chronicle  noted  the  fact 

30 


RAILROiVD  AFFAIRS 

that  another  mortgage  had  been  executed  to 
secure  $22,000,000  of  3I  per  cent,  bonds,  and 
one  week  later — May  12,  1900 — it  explained 
that  this  mortgage  was  a  lien  on  the  stock  of  the 
old  company,  as  well  as  on  the  track  and  equip- 
ment of  the  Peoria  Northern. 

On  the  12th  of  May,  1900,  the  Chronicle  an- 
nounced the  declaration  of  a  30  per  cent,  ''extra'' 
cash  dividend  on  the  stock  of  the  old  company, 
and  said  that  this  di\ddend  represented  "the 
accumulated  surplus  earnings  of  the  company 
which  had  not  been  distributed  to  the  stock,"  but 
had  been"  diverted  from  it." 

May  19,  1900,  the  Chronicle  clearly  stated  the 
fact  that  the  30  per  cent,  dividend  covered  a 
part  of  the  surplus  of  §12,444,000  obtained  by 
capitalizing  sums  spent  for  betterments  in  pre- 
vious years.  It  also  gave  an  explanation  of  the 
relations  between  the  Alton  Raili^^ay  Company 
and  the  Alton  ^zS\yoad  Company,  and  set  forth 
the  terms  on  which  the  latter  had  been  leased  to 
the  former.  Finally,  it  gave  the  amounts  of  the 
new  securities  that  had  been  distributed  pro- 
portionately among  the  members  of  the  syndi- 
cate, and  a  little  later  stated  that  the  market 
value  of  the  cash  and  new  securities  so  dis- 
tributed was  $1,115.75  for  every  $1,000  sub- 
scribed. 

31 


MISREPRESENTATION  IN 

November  12,  1900,  the  Chronicle  published 
in  full  the  listing  application  to  the  New  York 
Stock  Exchange,  in  which  every  feature  of  the 
reorganization  that  could  possibly  interest  or 
concern  an  investor  was  fully  and  clearly  de- 
scribed. 

First  and  last,  in  the  two  years  1899  and  19C0, 
the  Chronicle  published  no  fevvxr  than  thirty-six 
editorials,  statements,  circulars,  reports,  notices, 
or  news  items,  relating  to  the  Chicago  &  Alton 
reorganization;  and  if  there  was  any  fact  "un- 
covered" by  the  Interstate  Commerce  Com- 
mission in  1907  that  had  not  been  uncovered  by 
the  Commercial  b°  Financial  Chronicle  six  years 
earlier,  I  have  been  unable  to  find  it. 

Professor  Ripley  says,  in  his  latest  article, 
that  "everything  hinges"  on  the  questions 
^^ whether  frank  and  full  pubUcity  prevailed," 
and  whether  those  who  bought  the  Alton  se- 
curities from  the  syndicate  "purchased  them 
under  a  misapprehension  as  to  their  value."  (p. 
543.)  The  evidence  above  set  forth,  which  is 
taken  wholly  from  a  journal  recognized  by  the 
Commission  itself  as  an  authority,  seems  to  me 
to  show  conclusively  that  every  feature  of  the 
Alton  reorganization  was  laid  frankly  and  fuUy 
before  the  public,  and  that  no  investor  who 
bought  Alton  stocks  or  bonds  could  possibly 

32 


RAILROAD  AFFAIRS 

have  '^purchased  them  under  a  misapprehension 
as  to  their  value." 

Who,  then,  was  hurt  by  the  operations  of  Mr. 
Harriman  and  his  associates?  Not  the  old 
stockholders,  because,  as  even  Mr.  Ripley  admits, 
they  received  ''top-notch  prices"  for  their 
stock;  not  the  new  stockholders,  because  they 
are  accused  of  making  even  more  profit  than 
they  should  have  made;  not  the  subsequent  in- 
vestors, because  they  bought  with  full  knowl- 
edge of  w^hat  they  were  buying;  not  the  shippers, 
coal  miners,  farmers,  and  manufacturers  along 
the  line  of  the  road,  because  they  got  infinitely 
better  transportation  at  much  lower  rates;  not 
the  road  itself,  because  it  was  so  improved  by 
Mr.  Harriman  that  its  efficiency  was  more 
than  doubled.  Who,  then,  were  the  injured? 
Apparently  only  Professor  Ripley,  Theodore 
Roosevelt,  and  the  Interstate  Commerce  Com- 
mission. 

The  only  question  that  remains  unsettled  is 
whether  Professor  Ripley,  in  his  book  and  in  his 
articles,  has  accurately  presented  the  facts  of  the 
Alton  reorganization.  My  own  judgment  is 
that  he  stated  them  with  reasonable  accuracy  in 
the  report  that  he  wrote  for  the  U.  S.  Industrial 
Commission  in  190 1,  but  that  he  has  persistently 
misstated  them  ever  since  the  Interstate  Com- 

33 


MISREPRESENTATION  IN 

merce  Commission  began  its  attack  on  Mr. 
Harriman  in  1907. 

In  an  address  on  ''Education  for  Railway 
Work/'  delivered  September  24,  191 5,  at  the 
annual  opening  of  the  Commerce  School  of  the 
Northwestern  University,  Chicago,  Mr.  Samuel 
O.  Dunn,  editor  of  the  Railway  Age  Gazette^  said: 

"There  is  much  teaching  regarding  railway 
matters  in  our  universities  which  is  not  satis- 
factory. No  one  has  any  right  to  criticise  a 
professor  of  economics,  or  of  transportation,  or 
of  any  other  subject,  for  drawing  his  owm  con- 
clusions from  well-authenticated  facts,  no  mat- 
ter how  irrational  the  conclusions  may  seem. 
But  the  public,  the  railways,  and  most  of  all  the 
students  in  our  schools,  have  a  right  to  demand 
that  those  who  assume  the  responsibility  of 
giving  instruction  concerning  railway  matters 
shall  make  sure  they  know  the  facts  about  them 
before  they  try  to  teach  others."  {Railway  Age 
Gazette^  November  12,  191 5.) 

^  I  feel  reasonably  certain  that  when  Mr.  Dunn 
made  these  remarks  he  did  not  have  in  mind  the 
Ropes  Professor  of  Economics  in  Harvard 
University;  but,  if  I  may  make  the  suggestion 
with  all  proper  courtesy  and  respect.  Professor 
Ripley's  teaching  would  be  none  the  worse  if  he 
should  give  Mr.  Dunn's  words  the  serious  con- 
sideration that  they  seem  to  deserve. 

34 


RAILROAD  AFFAIRS 

In  concluding  this  second  review  of  the 
Chicago  &  Alton  case,  and  of  Professor  Ripley's 
statements  concerning  it,  I  ought,  perhaps,  to 
say  something  \vith  regard  to  the  way  in  which 
the  federal  investigation  of  1907  was  conducted 
by  the  legal  counsel  who  represented  the  Inter- 
state Commerce  Commission.  In  an  article 
published  in  the  Market  World  6*  Chronicle  for 
March,  19 15,  Major  Henry  L.  Higginson  of 
Boston  said  that  the  Government  should  in- 
struct the  various  Commissions  ''not  to  proceed 
against  corporations  as  a  criminal  lawyer  pro- 
ceeds, but  as  judges,  fair-minded,  open-minded, 
and  industrious  in  learning  the  facts  with  regard 
to  which  they  judge."  (N.  Y.  Evening  Posty 
March  20,  19 15.) 

Was  this  the  spirit  in  which  the  Chicago  & 
Alton  investigation  was  conducted  by  the  Inter- 
state Commerce  Commission?  Certainly  not! 
A  correspondent  of  the  London  Economist,  who 
was  present  at  the  taking  of  testimony  in  New 
York,  described  the  proceedings  in  the  following 
words: 

"The  members  of  the  Commission  surprised 
many  present  at  the  last  New  York  session  by 
their  manifestly  hostile  spirit  toward  Mr.  Harri- 
man  and  witnesses  allied  with  him.  It  had  been 
imagined  that  the  Commission  was  there  purely 

35 


MISREPRESENTATION  IN 

to  secure  such  testimony  as  it  might ;  and  that  it 
appreciated  the  fact  that  it  was  in  no  sense  act- 
ing as  a  court  having  cliarge  of  any  one  accused 
of  crime.  Yet,  from  the  manner  and  form  of 
questions  put  by  several  of  the  Commissioners, 
it  was  difficult  to  understand  how  they  regarded 
it  so — if  indeed  they  did.  Neither  is  it  any  vio- 
lation of  fact  to  explain  that  the  Commission's 
lawyers  acted  toward  Mr.  Harriman  and  Mr. 
Kahn  quite  as  if  they  were  prosecuting  attorneys 
who  had  at  last  got  before  the  bar  of  justice  some 
well-known  malefactors.  Not  only  did  they 
seek  at  times  to  prevent  witnesses  from  replying 
freely  to  questions,  but  they  were  truthfully 
accused  of  seeking  to  so  put  questions  and  so  in- 
sist upon  replies  as  to  leave  misleading  impres- 
sions.'^  (London  Economist^  March  i6,  1907.) 

These  words  were  not  written  for  an  American 
newspaper  prepossessed  in  favor  of  Mr.  Harri- 
man. They  were  written  for  one  of  the  best- 
known  financial  journals  of  England,  and  were 
to  be  read  by  the  people  of  Great  Britain.  Is  it 
an  unfair,  or  unreasonable,  conclusion  from  these 
facts  that  the  Commission  and  its  counsel  were 
not  trying  to  investigate  impartially  the  Chicago 
&  Alton  reorganization,  but  were  endeavoring  to 
make  out,  if  possible,  a  case  of  criminality 
against  Mr.  Harriman?  The  so-called  investi- 
gation was  a  one-man  hunt,  if  ever  there  was 

36 


RAILROAD  AFFAIRS 

one.  This  fact  was  well  understood  by  the 
better  informed  part  of  the  public,  and  in  June, 
1907,  the  Economist  said  editorially: 

"The  report  was  afloat  last  week  that  after  a 
conference  between  the  President  and  the  mem- 
bers of  the  Interstate  Commerce  Commission  it 
was  decided  that  no  violation  of  law  by  Mr. 
Harriman  had  been  discovered  under  which 
action  could  be  taken  against  him.  ...  It 
will  be  too  bad  for  the  Government  to  fail  of 
accomplishing  anything  after  all  this  talk.  If 
they  cannot  put  him  through  for  railroad  manip- 
ulation, why  don't  they  charge  him  with  car- 
rying concealed  deadly  weapons,  or  breaking 
the  Sabbath,  or  shooting  game  out  of  season? 
Anything  to  catch  him.  It  won't  do  to  give  it 
up  in  this  weak  way. "  (Economist^  Chicago,  June 
I,  1907.) 

• 

But  if  the  conviction  of  Mr.  Harriman  as  a 
law-breaker  was  the  object  of  the  one-man  hunt, 
it  was  a  complete  failure.  The  Interstate  Com- 
merce Commission  had  to  report  to  the  Presi- 
dent, as  stated  by  the  Economist^  that  ''no  viola- 
tion of  law  by  Mr.  Harriman  had  been  dis- 
covered," and  that  legal  proceedings  against  him 
would  not  be  expedient. 

This  was  evidently  the  conclusion  reached 
also  by  the  Rock  Island  Company,  and  the  To- 

37 


MISREPRESENTATION  IN 

ledo,  St.  Louis  &  Western  Company,  which  con- 
trolled the  Alton  successively  between  1906  and 
1 91 2.  Their  managers  certainly  were  not  par- 
tial to  Mr.  Harriman,  nor  cooperative  with  him, 
but  they  never  attempted  by  litigation  to  bring 
him  or  his  associates  to  account  for  anything 
done  in  the  course  of  the  Alton  reorganization. 
The  question  of  legality,  therefore,  would  seem 
to  be  conclusively  and  finally  settled.  The 
whole  transaction,  in  the  words  of  Mr.  Paul  D. 
Cravath,  'Svas  legal  from  beginning  to  end." 
Such  also  was  the  judgment  of  the  best 
Enghsh  and  American  authorities  at  the  time 
when  the  Alton  investigation  was  made.  In  a 
long  editorial,  pubHshed  April  27,  1907,  the 
Commercial  6*  Financial  Chronicle,  an  authority 
officially  recognized  by  the  Interstate  Commerce 
Commission,  referred  to  the  Alton  reorganiza- 
tion in  the  following  words : 

"We  know  of  no  railroad  transaction  which 
has  been  so  generally  and  so  sweepingly  con- 
demned. And  it  is  difficult  to  see  why  this 
should  be  so.  In  its  main  features  this  reorgan- 
ization did  not  differ  essentially  from  numerous 
other  reorganizations,  none  of  which  have  been 
criticised.  We  can  explain  the  general  expres- 
sions of  disapprobation  on  no  other  theory  than 
that  the  facts  are  but  imperfectly  understood — 

38 


RAILROAD  AFFAIRS 

or  not  understood  at  all — owing  to  the  sedulous 
efforts  that  have  been  made  to  create  erroneous 
impressions  with  regard  to  the  same.  Newspa- 
per headlines  and  editorial  and  other  comment, 
gave  the  impression  that  in  this  reorgani- 
zation a  few  leading  financiers  got  together,  se- 
cured control  of  the  property  and  looted  it,  at 
the  same  time  fleecing  the  security  holders; 
while  in  all  the  years  since  then  the  road  has 
been  engaged  in  robbing  its  patrons  by  charging 
them  exorbitant  prices  for  transportation  ser- 
vice rendered  them.  Nothing  could  be  further 
from  the  truth."  (Commercial  b"  Financial 
Chronicle,  April  27,  1907.) 

The  London  Statist  of  April  6, 1907,  published 
an  interview  with  Mr.  Robert  Fleming,  one  of 
the  most  eminent  English  authorities  on  Ameri- 
can railroads,  in  which  the  English  banker  said 
he  could  see  nothing  illegal  or  improper  in  the 
Alton  transaction.  In  commenting  on  the  in- 
crease of  capitalization,  he  pointed  out  the  fact 
that  inflation  of  the  same  kind,  in  England,  has 
repeatedly  been  sanctioned  by  both  Houses  of 
Parliament.  The  '^Ordinary"  shares  of  the 
Midland  Railway,  for  example,  were  thus  in- 
creased from  38,000,000  pounds  to  76,000,000 
pounds.  Mr.  Fleming  also  said  that  the  whole 
net  profit  of  the  Alton  syndicate,  in  which  he  par- 
ticipated merely  as  an  investor,  "was  only  8 

39 


MISREPRESENTATION  IN 

per  cent. — about  5  per  cent,  per  annum — noth- 
ing very  extraordinary  surely. "  (London  Statist , 
April  6,  1907.) 

Another  eminent  English  authority  on  Ameri- 
can railroads,  who  is  at  the  head  of  one  of  the 
most  famous  financial  houses  of  the  world,  said 
that  he  ''did  not  understand  the  outcry"  (in  the 
Alton  case)  ''because  nothing  had  been  done 
that  required  apology." 

Mr.  H.  T.  Newcomb,  a  well-known  American 
economist  and  statistician,  who  was  in  the  em- 
ploy of  the  Interstate  Commerce  Commission 
for  seven  years  as  railroad  expert,  published  an 
article  in  the  Railway  World  for  September  17, 
1909,  in  which  he  expressed  his  opinion  of  the 
Alton  transaction,  and  of  Mr.  Harriman,  in  the 
following  words : 

"Animadversions  upon  the  methods  which 
accompanied  the  rebirth  of  the  Chicago  &  Alton 
did  not  begin  until  nearly  ten  years  after  the 
episode  had  passed  into  history.  They  could 
not  have  originated  out  of  the  state  of  public 
opinion  of  the  year  (1898)  in  which  the  reorgani- 
zation occurred,  nor  were  they  at  any  time 
based  upon  any  valid  and  substantial  detriment 
to  the  traveling  and  shipping  public,  or  any  real 
damage  to  provident  investors.  Even  when 
official  agitation  against  railway  managers  and 
financiers  as  a  class  had  aroused  a  superficial 

40 


RAILROAD  AFFAIRS 

public  sentiment  which  sought  out  opportuni- 
ties to  suspect  and  to  condemn,  it  was  impossible 
to  convince  the  thinking  majority  that  the  sub- 
stitution of  an  active  and  vigorous  management 
for  the  rigid  unprogressiveness  of  the  adminis- 
tration of  the  able  but  unprogressive  President 
Blackstone  had  been  really  injurious  to  any  one, 
or  that  the  readjustment  of  capital  issues  in- 
cident to  the  physical  reconstruction  which  fol- 
lowed change  of  control  could  impose  additional 
charges  upon  travel  or  transportation.  The 
facts  cannot  be  repeated  too  often,  or  be  too 
much  emphasized.  Between  1897,  the  year  be- 
fore the  reorganization,  and  1907,  the  Alton's 
average  charge  per  passenger,  per  mile  carried, 
declined  from  21.16  mills  to  20.25  mills  (4.3  per 
cent.)  and  the  average  charge  per  ton  per  mile 
for  freight  was  reduced  from  8.91  mills  to  6.04 
miUs,  or  32.2  per  cent.  At  the  same  time,  the 
amount  of  work  done  in  the  public  service  more 
than  doubled,  and  the  typical  unit  of  ser\dce  be- 
came of  higher  quality,  travel  became  safer  and 
more  comfortable,  transportation  more  expe- 
ditious. 

Nearly  the  whole  m'leage  of  the  company  was 
repaid  with  heavier  rails;  passenger  car  capacity 
was  doubled;  freight  car  capacity  was  trebled; 
and  aggregate  tractive  power  increased  more 
than  twofold.  This  is  plainly  a  process  of 
cheapening  transportation  by  substituting  lower 
capital  cost  for  the  part  of  the  former  operating 
or  labor  cost  of  moving  persons  and  property. 
Yet,  in  spite  of  these  changes,  which  required  an 

41 


MISREPRESENTATION  IN 

expenditure  for  betterments  exceeding  one-half 
the  former  cost  of  the  property,  the  proportion 
of  gross  freight  rates  from  operation,  paid  to  cap- 
ital of  all  sorts  in  1905,  was  but  27.37  P^^  cent., 
an  increase  of  almost  exactly  one-eighth  of  one 
per  cent,  from  27.24  per  cent,  in  1899. 

The  reconstruction  of  the  Alton  was  a  funda- 
mental industrial  necessity,  which  was  certain 
to  be  undertaken  by  some  one,  and  there  is 
nothing  in  the  manner  in  which  it  was  accom- 
plished, or  in  the  results  attained  under  his 
management,  that  is  not  creditable  to  Mr.  Harri- 
man.  ...  If  history  ever  learns  to  award 
credit  and  fame  by  an  adequate  admeasurement 
of  services  rendered,  no  citizen  of  America  who 
has  lived  and  worked  in  recent  decades  will  be 
placed  higher  than  he  who  restored  the  Union 
Pacific,  regenerated  the  Alton,  made  the  Illinois 
Central  a  harmonious  unit  in  a  coordinated 
transportation  system,  and  rescued  the  Erie. 
He  gave  himself  with  labor  unceasing  while  he 
lived  and  wrought."  {Railway  Worlds  September 
17,  1909.) 


It  would  not  be  difficult  to  furnish  much  more 
evidence  that  the  reorganization  of  the  Alton  has 
been  persistently  misrepresented  and  generally 
misunderstood;  but  one  more  citation  must 
suffice: 

No  economist  in  Europe  is  better  acquainted 
with  American  railroads  that  Mr.  W.  M.  Ac- 

42 


RAILROAD   AFFAIRS 

worth,  lecturer  in  the  School  of  Economics  in 
London.  In  a  review  of  my  ''  Chicago  &  Alton 
Case,"  published  in  the  London  Economic 
Journal  for  March,  191 6,  Mr.  Acworth  says: 

"Mr.  Kennan  writes  with  studious  modera- 
tion, and  gives  chapter  and  verse  for  every  state- 
ment he  makes.  But  he  meets  the  charges  of 
Professor  Ripley  with  so  emphatic  a  contradic- 
tion that  it  would  seem  that  he  has  not  only 
vindicated  the  honor  of  Mr.  Harriman,  but  laid 
upon  Professor  Ripley  the  obligation  of  defend- 
ing his  own  accuracy  and  scientific  impartiality. 
.  .  .  If  the  facts  be  as  Professor  Ripley  has 
stated,  then  perhaps  his  language  describing  Mr. 
Harriman  as  a  ^conspirator,'  and  his  manage- 
ment as 'unscrupulous,'  'piratical,'  'fraudulent,' 
and  'predatory'  may  not  be  too  strong.  But 
unless  he  can  disprove  the  facts  set  forth  by  Mr. 
Kennan,  it  would  seem  that  Professor  Ripley  has 
done  grievous  injustice  to  the  memory  of  a  man 
whose  services  to  the  science  of  railroading  will 
hardly  be  reckoned,  by  those  who  know  what  his 
work  was,  as  less  than  those  rendered  by  George 
Stephenson  himself." 


43 


THE  PSYCHOLOGY  OF  MR.  ROOSEVELT 


CHAPTER  II 

The  Psychology  of  Mr.  Roosevelt 

In  the  North  American  Review  for  April  was 
printed  a  letter  from  Mr.  Roosevelt  in  which  he 
referred  to  me,  rather  contemptuously,  as  "a'' 
Mr.  Kennan;  accused  me  of  concealment, 
meanness,  dishonesty,  and  cowardice;  character- 
ized as  "monstrous  iniquity"  my  suggestion 
that  there  might  have  been  some  connection  be- 
tween the  Harriman  quarrel  and  the  Alton  in- 
vestigation; and  finally  declared  that  I  am  "un- 
fit to  be  beheved,"  and  that  he  "would  refuse  to 
accept  my  unsupported  assertion  on  any  point 
whatever,"  in  connection  with  this  subject. 

In  the  brief  reference  that  I  made  to  Mr. 
Roosevelt  in  my  article  on  the  Chicago  &  Alton 
case  in  the  January  North  American  Review,  I 
endeavored  to  treat  him  with  courtesy.  It 
seemed  necessary  to  point  out  the  fact  that  the 
rupture  of  friendly  relations  between  Mr.  Roose- 
velt and  Mr.  Harriman  occurred  in  the  fall  of 
1906,  and  that  almost  immediately  thereafter 
the  Interstate  Commerce  Commission  began  an 

47 


MISREPRESENTATION  IN 

attack  on  Mr.  Harriman  which  was  based  on 
transactions  that  were  then  nearly  eight  years 
old.  A  reference  to  this  chronological  sequence 
of  events  seemed  to  me  justifiable  and  proper,  as 
a  possible  explanation  of  the  Commission's  sud- 
den interest  in  ancient  railroad  history.  In 
making  such  reference,  however,  I  tried  to  be  as 
courteous  to  Mr.  Roosevelt  as  I  could — ^pur- 
posely avoiding  a  discussion  of  the  Roosevelt- 
Harriman  controversy  on  its  merits,  and  explain- 
ing it  only  so  far  as  seemed  to  be  necessary  in 
order  to  show  its  possible  bearing  on  the  Chicago 
&  Alton  investigation.  Mr.  Roosevelt  calls  my 
forbearance  "concealment,''  and  replies  by  at- 
tacking my  personal  character.  No  self-respect- 
ing man  will  silently  submit  to  the  charge  of  un- 
truthfulness, nor  ought  he  to  do  so  if  conscious 
of  his  own  sincerity.  In  Mr.  Roosevelt,  the 
making  of  this  charge  has  become  a  habit;  and 
in  replying  to  such  an  accusation  from  him  it 
seems  necessary,  and  in  the  public  interest,  to 
devote  some  consideration  to  those  traits  of  his 
character  which  have  prompted  him  to  describe 
as  ''unworthy  of  belief"  so  many  men  who  have 
disagreed  with  him  on  questions  of  fact. 

I  first  saw  Mr.  Roosevelt,  in  New  York  City, 
more  than  twenty  years  ago,  at  a  meeting  of  the 
old  FeUowcraft  Club,  to  which  I  was  taken  by 

48 


RAILROAD  AFFAIRS 

Richard  Watson  Gilder,  and  at  which  Mr. 
Roosevelt  made  a  short  speech  on  tendencies  in 
modern  literature.  The  first  impression  that  he 
made  upon  me  was  that  of  a  robust  hater  and 
vehement  denouncer  of  people  who  were  re- 
pugnant to  him.  In  the  class  of  ''undesirable 
citizens,"  at  that  time,  happened  to  be  a  certain 
weU-known  American  novehst.  I  cannot  now 
remember  aU  the  unpleasant  things  Mr.  Roose- 
velt said  about  him;  but  he  summed  up  his 
estimate  of  the  obnoxious  writer's  character  and 
art  in  the  words :  "  Some  men  are  bad,  and  some 

men  are  immoral;  but is  a  malignant 

pustule!"  As  this  characterization  was  made 
with  a  fierce  gesture  and  a  clenching  of  the 
strong  white  teeth,  I  said  mentally  to  myself: 
"If  this  young  Civil  Service  Commissioner  fuUy 
develops  his  capacity  for  hatred  and  his  natural 
gift  for  denunciation,  he  wiU  be,  in  the  maturity 
of  his  powers,  an  unpleasant  man  to  encounter." 
About  this  same  time,  according  to  the  recol- 
lection of  a  well-known  author  and  publisher, 
Mr.  Roosevelt  came  from  Washington  to  New 
York  ''mainly  in  order  to  have  the  satisfaction 
of  saying,  with  solemn  emphasis,  in  the  sympa- 
thetic circle  of  the  Civil  Service  Reform  Associ- 
ation, '  Damn  John  Wanamaker ! ' "  (Memories 
of  a  Publisher^  by  George  Haven  Putnam,  p. 

49 


MISREPRESENTATION  IN 

141.)  Doubtless  Mr.  Roosevelt  could  have 
given  perfectly  good  reasons  for  condemning  the 
novehst  and  damning  John  Wanamaker;  but  be 
that  as  it  may,  the  incidents  are  of  interest  as 
showing  that  his  disposition  to  denounce  the 
conduct  of  his  opponents  as  '^monstrous  in- 
iquity" became  apparent  almost  at  the  begin- 
ning of  his  public  career. 

After  the  meeting  at  the  Fellowcraft  Club  I 
do  not  remember  seeing  Mr.  Roosevelt  again 
until  we  were  thro^vn  together  in  the  Cuban 
campaign,  when  he  was  mth  the  Rough  Riders 
and  I,  as  Vice-President  of  the  Red  Cross,  was 
serving  in  the  field  hospital  at  the  front.  He 
then  came  to  me  several  times  for  food  and 
medicines,  which,  on  account  of  the  unprepared 
state  of  the  army,  he  could  not  get  elsewhere. 

Between  1902,  when  he  instructed  the  Secre- 
tary of  the  Navy  to  give  me  transportation  on 
the  cruiser  Dixie  to  Martinique,  and  1904,  when 
he  invited  me  to  luncheon  at  the  White  House  to 
discuss  mth  other  Far  Eastern  travelers  the 
Russo-Japanese  war,  I  saw  Mr.  Roosevelt  fre- 
quently and  talked  with  him  concerning  many 
different  affairs.  I  was  then  the  staff  corres- 
pondent of  the  Outlook  in  Washington,  and  my 
duties  made  it  necessary  for  me  to  go  to  the 
White  House  often,  and  to  talk  with  the  Presi- 

50 


RAILROAD  AFFAIRS 

dent  about  various  Governmental  matters  that 
had  been  referred  to  me  from  the  home  ofhce. 
Among  such  matters  were  the  pohtical  activities 
of  J.  Edward  Addicks  in  Delaware,  with  regard 
to  which  I  made  several  reports  to  him;  and  the 
attempt  of  two  Texan  cattle  syndicates  to  get 
possession  of  a  large  part  of  the  Indian  Reserva- 
tion of  the  Standing  Rock  Sioux.  In  the  latter 
case  Mr.  Roosevelt  felt  confident,  at  first,  that 
my  statements  were  erroneous;  but  when,  partly 
upon  my  initiative,  he  sent  Mr.  George  Bird 
Grinnell  to  the  Standing  Rock  Agency  to  make 
an  investigation,  he  found  that  my  information 
was  in  every  respect  accurate.  I  am  glad  to  do 
him  the  justice  of  saying  that  when  he  was  fully 
convinced  of  this  he  blocked  the  syndicate  ''steal" 
with  characteristic  promptness  and  vigor. 

During  my  stay  in  the  Far  East,  from  1904  to 
1906,  I  wrote  Mr.  Roosevelt  a  number  of  times 
about  the  question  of  Japanese  immigration, 
which  was  then  becoming  acute,  and  I  was  the 
first,  so  far  as  I  know,  to  suggest  to  him  the  ex- 
pediency of  allowing  the  Japanese  to  limit  emi- 
gration on  their  side  of  the  Pacific.  Within  a 
year  or  two  thereafter  he  negotiated  with  the 
Japanese  Government  the  so-caUed  "gentle- 
men's agreement,"  which  is  still  in  force. 

After  my  return  from  the  Far  East  I  saw  Mr. 

SI 


MISREPRESENTATION  IN 

Roosevelt  several  times,  by  appointment,  at  the 
White  House,  and  once,  I  remember,  after  talk- 
ing with  him  for  an  hour  and  a  half,  I  was  asked 
to  stay  a  little  longer  and  teU  him  more  things 
while  he  was  being  shaved.  Then  again,  toward 
the  end  of  his  second  term,  he  gave  me  con- 
fidentially, in  his  White  House  office,  his  reasons 
for  believing  that  Mr.  Taft  would  be  the  best 
possible  candidate  to  succeed  him.  Finally, 
after  he  joined  the  staff  of  the  Outlook^  of  which 
I  was  also  a  member,  we  were  again  throw^n  more 
or  less  frequently  together,  and  I  met  him  oc- 
casionally at  the  editorial  lunches. 

These  personal  details  have  Httle  interest  per- 
haps in  themselves,  but  they  show  what  op- 
portunities I  have  had  to  observ^e  Mr.  Roosevelt, 
and  they  also  show,  incidentally,  that  when  he 
now  speaks  of  "a^'  Mr.  Kennan,  as  if  hearing  of 
me  for  the  first  time,  he  is  not  wielding  the 
proverbial  "big  stick,"  but  is  using  a  rather 
small  domestic  pin. 

I  have  always  regarded  Mr.  Roosevelt  with 
respect  and  esteem,  as  a  man  of  sincerity  and  in- 
tegrity. I  do  not  think  that  he  would,  or  could, 
make  a  statement  that  he  did  not  beheve  to  be 
true.  Unfortunately,  however,  he  is  easily 
swayed  by  passion,  and  when  he  is  angry — 
righteously  angry  as  it  seems  to  him — his  judg- 

52 


RAILROAD  AFFAIRS 

ment  and  his  memory  are  so  colored  by  personal 
feeling  that  he  can  neither  see  with  perfect 
clearness  nor  remember  with  perfect  accuracy. 
He  is  not  consciously  unjust  or  untruthful;  on 
the  contrary,  he  passionately  believes  that  his 
judgment  is  fair  and  his  memory  infallible.  He 
can  review  his  past  controversies  with  the  firm 
conviction  that  he  has  always  been  right,  or 
nearly  right,  and  that  those  whom  he  regards  as 
his  enemies  have  always  been  "monstrously'' 
wrong. 

It  is  this  dominating  influence  of  personal  feel- 
ing that  makes  him  see  the  characters  of  other 
men  not  objectively,  as  they  are  in  themselves, 
but  subjectively,  as  they  appear  to  him  in  the 
light  of  personal  relationship.  If  a  man  sym- 
pathizes with  him,  agrees  with  him  and  supports 
him,  such  a  man  is  a  good  and  honorable 
citizen;  but  if,  on  the  other  hand,  a  man  opposes 
him,  or  questions  the  wisdom  or  propriety  of  his 
actions,  such  man  becomes  an  undesirable  citi- 
zen with  a  more  or  less  defective  moral  char- 
acter. The  Taft  whom  Mr.  Roosevelt  con- 
fidentially sketched  for  me  in  the  early  part  of 
1908,  while  he  and  Mr.  Taft  were  still  friends, 
differed  widely  from  the  ''deceitful"  and  ''hyp- 
ocritical" Taft  whom  he  saw  in  his  mind's  eye 
during  the  election  campaign  of   191 2.    The 

S3 


\ 


MISREPRESENTATION  IN 

eminent  railroad  president  whom  he  always 
addressed,  between  1901  and  1905,  as  "My  dear 
Mr.  Harriman'^;  whom  he  invited  again  and 
again  to  the  White  House  as  an  honored  guest; 
whom  he  said  it  was  ''a  real  pleasure  to  see"; 
and  whom  he  desired  to  consult  about  his  letter 
of  acceptance,  his  message  to  Congress,  and 
other  "  Government  matters  not  connected  with 
the  campaign,''  became  a  totally  different  Harri- 
man  when  the  quarrel  occurred  in  1906,  and 
when  Mr.  Roosevelt  looked  at  his  former  friend 
through  the  distorting  medium  of  a  changed 
personal  relation.  This  disposition  to  judge 
men  narrowly  by  their  relation  to  him,  rather 
than  broadly  by  the  sum  total  of  their  activities, 
has  long  been  a  trait  of  Mr.  Roosevelt's  char- 
acter, and  it  was  notably  shown  in  his  attitude 
toward  the  struggle  for  honest  government  in 
Delaware,  when  a  notorious  political  adventurer 
tried  to  get  into  the  United  States  Senate  by 
methods  that  all  the  best  men  of  his  own  political 
party  condemned  and  combated. 

Bearing  in  mind  this  characteristic  of  Mr. 
Roosevelt,  let  us  inquire  whether,  at  the  time  of 
the  Alton  investigation,  the  President  was,  as  a 
matter  of  fact,  influencing  the  Interstate  Com- 
merce Commission,  or  taking  a  hand,  person- 
ally, in  its  policies  and  activities. 

54 


R.\ILROAD   AFFAIRS 

In  the  recent  trial  of  the  New  York  &  New 
Haven  Railroad  directors  for  alleged  con- 
spiracy to  violate  the  provisions  of  the  Sherman 
anti-trust  law,  Mr.  Charles  S.  Mellen,  former 
president  of  the  road,  testified  that  he  went  to 
Washington  in  1907 — the  year  of  the  Alton  in- 
vestigation— for  the  purpose  of  finding  out 
whether,  under  the  provisions  of  the  Sherman 
law,  his  road  would  be  allowed  to  keep  its  Long 
Island  Sound  steamers,  or  would  be  required  by 
the  Interstate  Commerce  Commission  to  sell 
them.  He  went  first,  not  to  the  Commission, 
but  to  President  Roosevelt.  The  latter  sent  for 
Commissioners  Knapp  and  Prouty,  and  pre- 
sumably consulted  them;  but  he  seems  to  have 
taken  the  final  determination  of  the  question 
into  his  own  hands  when  he  said  to  Mr.  Mellen : 
*^I  cannot  promise  you  any  kind  of  protection  if 
you  break  the  law;  but  as  far  as  I  and  my  Ad- 
ministration are  concerned,  if  you  do  not  sell, 
you  wiU  have  no  trouble  about  those  steamship 
lines.''  (New  York  Times,  November  11,  1915.) 

A  little  later,  that  same  year,  Mr.  IMellen 
again  went  to  President  Roosevelt,  to  ascertain 
whether  the  Interstate  Commerce  Commission 
w^ould  interfere  if  the  New  York  &  New  Haven 
Railroad  Company  should  buy  the  Boston  & 
Maine.     Again  the  President   seems  to  have 

55 


^^' 


MISREPRESENTATION  IN 

taken  the  decision  of  the  question  into  his  own 
hands  by  saying :  ''  I  would  buy  it  if  I  were  you.'' 
(Testimony  of  Mr.  Mellen,  New  York  TinieSy 
November  23, 19 15.)  Mr.  Henry  M.  Whitney  of 
Boston,  who  evidently  thought  that  in  railroad 
matters  the  President  was  more  to  be  feared  than 
the  Interstate  Commerce  Commission,  wrote  to 
Mr.  Mellen,  on  the  21st  of  May,  1907:  "I  have  > 
also  thought  it  possible  that  the  Little  Father  m 
Washington  might  like  to  get  his  finger  in  the 
pie  [the  purchase  of  the  Boston  &  Maine]  in 
which  case,  if  it  should  happen  before  the  public 
had  become  reconciled  to  the  change,  it  might 
result  in  infinite  harm  to  all  your  interests." 
(New  York  Times,  November  23,  191 5.) 

It  would  thus  appear  that  in  two  important 
cases  at  least,  the  President  did  have  a  ''  finger  in 
the  pie,"  and  did  influence  or  control,  more  or 
less  effectively,  the  Interstate  Commerce  Com- 
mission. Is  it  wholly  unreasonable  or  ^'mon-  . 
strous,"  then,  to  suppose  that,  at  or  about  the 
same  time,  he  put  his  strong  and  capable  finger 
into  the  "pie"  of  the  Alton  investigation,  even 
if  he  did  not  make  or  bake  it?  I  would  not  con- 
tend, for  a  moment,  that  Mr.  Roosevelt  inspired 
or  encouraged  the  investigation  of  Mr.  Harri- 
man's  long-past  activities  merely  because  he  had 
had  a  quarrel  with  him.    He  did  not  look  at  the 

56 


RAILROAD  AFFAIRS 

matter  from  that  point  of  view  at  all.     As  Mr. 
Taft  in  191 2  seemed  to  him  an  unworthy  candi- 
date for  the  Presidency,  whom  it  was  his  duty  to 
oppose,  so  Mr.  Harriman,  in  1908,  seemed  to  him 
the  leading  exponent  of  a  dangerous  railroad 
policy,  whom  it  was  his  duty  to  check.     In  each     ^^ 
case,  the  quarrel  first  changed  Mr.  Roosevelt's         j  c^  , 
view  of  the  man,  and  then,  in  each  case,  the     ^  ^    ^ 
changed  view  resulted  in  antagonistic  action,     ^ 
based  on  a  sense  of  duty. 

Mr.  Roosevelt  thinks  it  "monstrously  in- 
iquitous" to  suppose  that  he  would  ask  the  In- 
terstate Commerce  Commission  to  proceed 
against  a  railroad  president  merely  because  he, 
Mr.  Roosevelt,  had  had  a  personal  disagreement 
with  him.  That  is  not  at  all  my  supposition.  If 
he  suggested,  inspired,  encouraged,  or  con- 
trolled the  Alton  investigation  in  any  way,  he 
did  so  with  the  firm  and  sincere  belief  that  he 
was  under  a  moral  obligation  to  make  an  ex- 
ample of  a  man  whom  he  had  come  to  regard  as  a 
dangerous  railroad  speculator  and  monopoHst. 
But  he  did  not  take  anything  like  this  view  of  the 
railroad  president  until  after  he  had  quarrelled 
with  him,  a'-though  aU  of  Mr.  Harriman's  more 
important  operations,  including  the  reorganiza- 
tion of  the  Union  Pacific,  the  Alton  transaction, 
the  purchase  of  control  in  the  Southern  Pacific, 

57 


MISREPRESENTATION  IN 

the  Northern  Pacific  "  corner/'  and  the  North- 
ern Securities  merger,  had  been  fully  set  forth  in 
the  newspapers,  or  litigated  in  the  courts,  and 
had  been  well  known,  not  only  to  students,  but 
to  the  general  public  for  years.  It  cannot 
reasonably  be  supposed  that  the  President, 
throughout  the  period  of  his  friendly  association 
with  Mr.  Harriman,  was  wholly  ignorant  of 
them;  and  yet  neither  he  nor  the  Interstate  Com- 
merce Commission  took  action  upon  them  until 
after  the  quarrel  in  1906. 
That  the  Interstate  Commerce  Commission, 
^  in  1907,  was  strongly  influenced  by  President 
^^  Roosevelt,  there  can  hardly  be  a  question.  In 
March  of  that  year,  immediately  after  the  Alton 
investigation,  it  was  currently  reported  in  New 
York  that  the  Government  intended  to  foUow  up 
the  attack  on  the  Harriman  lines  by  making  a 
"general  raid"  on  other  great  railroad  systems. 
So  much  was  pubHc  confidence  unsettled  by 
these  reports  that,  on  the  nth  of  March,  a 
delegation  of  New  York  men  of  affairs,  headed 
by  Mr.  J.  Pierpont  Morgan,  went  to  Washington 
to  make  inquiries.  Apparently,  however,  they 
did  not  go  to  the  Interstate  Commerce  Commis- 
sion. They  went  directly  to  President  Roose- 
velt. Upon  laying  the  situation  before  him, 
they  were  given  to  understand  that  "no  raid 

58 


RAILROAD  AFFAIRS 

was  contemplated  by  the  Commission;  that 
nothing  would  be  done  in  a  spirit  of  resentment, 
or  that  would  have  a  tendency  to  add  to,  or 
even  continue,  the  existence  of  the  prevailing 
public  distrust."  {Commercial  b'  Financial 
Chronicle,  March  i6,  1907.) 

From  the  fact,  as  stated  in  the  Chronicle,  that 
the  Morgan  delegation  went  directly  to  Presi- 
dent Roosevelt,  to  ascertain  the  intentions  of  the 
Interstate  Commerce  Coramission,  it  would 
seem  to  be  a  fair  inference  that,  in  the  opinion  of 
business  men,  the  Commission  was  greatly  in- 
fluenced, if  not  largely  controlled,  by  the  Presi- 
dent's views  of  pubhc  poHcy.  Why  Mr. 
Roosevelt  decided  that  it  would  not  be  ex- 
pedient to  extend  Alton-investigation  methods 
to  other  railroad  systems  does  not  appear. 
Perhaps  he  thought  that  the  object-lesson 
afforded  by  the  attack  on  the  Harriman  lines 
would  serve  as  a  sufficient  warning  to  other  rail- 
road managers,  should  they  feel  inclined,  at  any 
future  time,  to  disregard  the  menace  of  the 
''big  stick." 


59 


•  •  • 


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